Prisoner’s Dilemma

Summary: The Prisoner’s Dilemma is a hypothetical scenario which illustrates the difficulty of deciding whether to cooperate or compete with other people. Understanding the costs and benefits of cooperating and competing is applicable to various fields including business, economics, and politics.

The Prisoner’s Dilemma is a scenario that was created to describe concepts behind game theory.[i] Game theory is the study of how and why people cooperate or compete with one another. The Prisoner’s Dilemma was originally created by two scientists named Merrill Flood and Melvin Dresher. In later years, professor Albert William Tucker developed the Prisoner’s Dilemma further, using it as a teaching tool for his graduate psychology students.

Here’s the scenario: Two friends – let’s call them Jim and Matt – have been convicted of a crime. The police bring Jim and Matt in for questioning and place them in separate rooms. Each of them has two options. They can confess to the crime, or remain silent regarding the crime. Matt and Jim are both told that the option they choose will affect them personally and affect their friend in the following ways.

If they both choose to remain silent, each will receive only 1 year in prison.

Another option is for both of them to confess. If this happens, they each get two years in prison.

The final option is for one of them to confess and the other to remain silent. If Matt confesses and Jim remains silent, Jim will get three years in prison and Matt will go free. And vice versa.

What should each of them do? Consider this scenario from Matt’s perspective.

Is it best for Matt to cooperate by remaining silent? In some ways, this is the riskier choice. There is no chance for him to go free. He will either serve one year with Jim or three years alone. But Matt may care about Jim and want to consider his well-being as well. Remaining silent could lead to the best case scenario for both of them together.

Or, is it best for Matt to compete by confessing to the crime. In some ways, this is the safest choice. Matt could go free. And he avoids any chance of the longest possible sentence of three years. But it would also be a decision made out of self-interest, and Matt may want to consider if only his interest is important to him.

Cooperating or Competing

Is it better to cooperate or compete? This is the main question behind The Prisoner’s Dilemma.

This question, as illustrated in the scenario, is highly applicable to a number of fields such as business, economics, and politics.

The Prisoner’s Dilemma is a reminder that cooperation is not always best.[ii] Immediately cooperating can lead to consequences if the other party is only thinking about personal self-interest. For example, when it comes to salary negotiations, it is not always in a person’s best interest to take the first salary offered. Sometimes it is better to push for a higher salary, even though this might not work out. Another example would be pricing a product. Often it is better for businesses to compete with one another by lowering prices. Lowering prices can lead to higher profit margins than if a business cooperated and priced similarly to other businesses in the area.

On the other hand, The Prisoner’s Dilemma also illustrates that it isn’t always best to look out for one’s self-interest only. When businesses show mutual cooperation, it can lead to increased profit for both of them. Businesses sometimes form mutually beneficial strategic partnerships, such as when Starbucks coffee is sold in Barnes and Noble bookstores. Mutual cooperation is also an important strategy in politics. For example, mutual cooperation between countries may be risky and require compromise; however, it can also be a means of keeping peace and enhancing trade.[iii]